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Earnings Scorecard: Ferrellgas

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Earlier this week, Ferrellgas Partners L.P. (FGP - Analyst Report) released mixed results for its fourth quarter of fiscal 2011. The partnership’s results reflected the impact of the seasonal nature of the retail propane distribution business, which has historically pulled down the partnership’s performance in the first and fourth quarters of the fiscal year.

Earnings Review

Ferrellgas Partners reported a net loss per unit of 53 cents for the fourth quarter of fiscal 2011, wider than the Zacks Consensus Estimate of a loss of 41 cents. The quarter’s loss was 5 cents less than the prior-year quarter's loss of 58 cents.

For fiscal 2011, Ferrellgas Partners reported a net loss per unit of 60 cents, wider than the Zacks Consensus Estimate of a loss of 48 cents. In the previous financial year, the company reported earnings of 47 cents per unit.

The partnership’s total revenue of $449.7 million in the quarter was 27.1% higher than $353.8 million reported in the comparable year-ago period. The top line for the quarter also beat the Zacks Consensus Estimate of $441 million.

Fiscal 2011 revenue at Ferrellgas reached $2.423 billion, up 15.4% from $2.09 billion reported in the previous fiscal year. Fiscal year top-line results, however, marginally fell short of the Zacks Consensus Estimate of $2.427 billion.

Following the mixed results for the fourth quarter and fiscal 2011, one analyst revised its estimates downward for fiscal 2012 in the past 7-day and 30-day periods, while there was no upward revision. However, none of the analysts revised their estimates for fiscal 2013, in either direction, during both the periods.

Magnitude of Estimate Revisions

As a result of downward movement in estimate witnessed over the past week and month, the Zacks Consensus Estimate for fiscal 2012 slipped by 1 cent to 78 cents per share. Despite analysts maintaining their estimates for fiscal 2013, the Zacks Consensus Estimate moved down by 6 cents to $1.07 per share.

Our Recommendation

Despite the quarterly miss, we believe the long term earnings picture for Ferrellgas is encouraging. Ferrellgas Partners has been growing through acquisitions and by expanding its presence. We like the partnership's strategy of pushing for acquisitions, which supplements its organic growth efforts. Since the beginning of fiscal year 2011, the partnership has made five acquisitions. We also appreciate the partnership’s efforts at asset-liability management by lowering debt and improving liquidity.

Furthermore, the partnership has been trying hard to curb its expenditures. Strikingly, in the reported quarter, as well as the fiscal year, operating expenses of the partnership decreased as a percentage of total revenue.

Though encouraged by the partnership’s strategies and efforts, we still see the absence of distribution growth as a major drag on its valuation and investor appeal. We do not see any catalyst to change this situation in the near-term, which should affect the unit price going forward.

Ferrellgas Partners currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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